The proper role of government in our development

Apr 18, 2004 Success, Sunday Nation

Successive governments since independence have, in varying degrees, been devoid of vision, devoid of ethics and devoid of competence. In other words, as they took charge of the bus called Kenya, they drove us round in circles, failed to maintain the vehicle until it collapsed, and ran away with all the passengers’ money.

Given this, I am often asked: why do we need government? If the net value added by government is negative, would we not be better off without one? Should we not focus our efforts on alternative vehicles of development? A lovely thought, but not one that will take us anywhere worth going. Government, sadly, is necessary. But the government that will deliver development to this nation is the one that will grasp a fundamental idea: that governing people entails simultaneously increasing and limiting their freedoms. The intelligent management of this apparent paradox is the key to economic growth.

Let’s start with the granting of freedoms. Development requires, first and foremost, political freedom. It demands that people are free to choose their governments, free to scrutinise and criticise them, and free to reject them. This type of freedom is particularly important because it ensures that a government performs: it either delivers on its promises or faces the sack.

Secondly, development demands economic freedom. This means that individuals should have access to development finance on suitable terms, that they are free to trade, and that they are free to participate in markets that are open to all on equal terms.

In addition to these two fundamental freedoms, others matter. Individuals must have social freedoms: access to education and healthcare, so that we all have the freedom to live better. Nations must operate under the guarantee of transparency, so that there is a basic presumption of trust in the economy. And they must provide protective security to the populace: the freedom to function without threat to life and limb, and the guarantee of safety nets by the government when disaster strikes.

These ideas are not mine, nor are they new. Their most respected proponent is Amartya Sen, a Nobel laureate in economics. They spell out, succinctly and lucidly, what government should be all about: the provision of guaranteed freedoms and incentives to its people. And they allow us to see where exactly we got it all wrong. For if this is government, then we are yet to have one.

Forty years of Kanu sorely curtailed our political freedoms- and the effects on performance were there for all to see. Government became a machine for self-perpetuation, not for development. Economic freedoms were skewed in favour of certain segments of society. We built up monopolies that had the highest cost ratios in the world and the lowest productivity. On transparency, social facilities and protective security, our record is notable only for its bleakness.

So freedoms are paramount, and we have failed to provide them. But you and I cannot provide these freedoms; we need a government for that. Even if we can install our own generators and pay for our own security, we can’t build access roads in rural areas. Even if we can pay for the best education for our children, we can’t offer education for the masses. So even if we can prosper individually, we can’t make the country develop or the economy grow. There’s no getting away from the need for effective government.

Let’s turn to the other point of the paradox: regulation. Freedom must go hand-in-hand with regulation. They are the two sides of the development coin. What happens if you grant freedoms without effective regulation? Our matatu industry (before its recent reform) is what happens. People organise their own markets, and cartels start to form. Violence becomes an accepted form of market persuasion. Traffic regulations are ignored in the drive for profit, and chaos reigns on the streets.

We have all suffered at the hands of an untrammelled matatu industry, and we all agree on the need for regulation. But the acceptance of regulation is not always automatic. Take, for example, one of the unintended consequences of matatu industry reform: the fact that many people have taken to the road in old, decrepit cars. Should this not be a fundamental right? If you are poor and an old banger is all the car you can afford, why should anyone stop you from driving it? Freedom of movement, is it not?

No. This is an example of what economists call a ‘negative externality’. Put simply, it means that when you put the bald tyres back on that rust bucket, crank it up and bring it heaving and spluttering onto a public road, you are having a negative effect on society. When your rattletrap come to a shuddering halt in the middle of Uhuru Highway at 8.00 am, you are clogging up the roads and causing untold delays. When your jalopy belches out toxic smoke into the lungs of pedestrians, you are a health hazard. Poor or not, you must be prevented from inflicting your costs on the rest of us. Effective regulation will either prevent you from using your boneshaker, or ensure that you pay the costs of that activity through higher taxation.

Negative externalities must be addressed by governments, regardless of who causes them. When a large industrial plant pumps nasty effluent into Nairobi River, a sensible government makes sure it pays the full cost of doing this. When a sweatshop tries to get away with dehumanising work conditions for its employees, the hand of regulation must step in.

This is the work of a government that works: to guarantee freedoms and manage regulation. Freedom without regulation leads to a matatu society. Unintelligent regulation stifles activity and kills incentives. All over the world, the countries that have prospered have had governments that have got this balance right.

Is the Narc government the first one in Kenya that might get it right? President Kibaki gets it right when he emphasises the importance of cheap credit to farmers over state handouts. Minister Michuki gets it right when he whips the matatu industry into shape. The government as a whole gets it right when it gives strategic emphasis to education and security.

Yet it fails when it cannot deliver transparency in its dealings with its people. It fails when it recreates government-owned monoliths in agriculture. It fails when it dangles the carrot of profit before investors without brandishing the stick that will beat out environmental pollution and employee exploitation. And it fails when it cannot deliver security and prepare for national emergencies.

We need a government that understands these successes and failures. Without it we will always place very low ceilings on our growth. Keep your eyes peeled for the government that understands the idea of economic balance. If this is not the one, well, you know what to do: shout out loud, and vote with your feet.